Congress Votes to Extend Ban on Internet Access Taxes

Congress last week passed legislation that extends by three years the prohibition of states and localities from imposing "discriminatory" taxes on electronic commerce, and the ban on Internet access taxes.

The House of Representatives on Friday approved the extension of the tax moratorium, which covers the four-year period retroactive from November 2003 through October 2007. On Wednesday the Senate had approved a version of the same bill, and President Bush is expected to sign it into law when it reaches his desk.

"Enacting this legislation is a big win for the majority of American Internet users," said House Judiciary Committee Chairman F. James Sensenbrenner, Jr. (R-Wis.), in a statement. "Without any action by this Congress, Internet commerce would be subject to state and local taxes in thousands of jurisdictions. The digital economy and its participants are more vulnerable if we do not act -- even if this legislation is far inferior to the bipartisan legislation the House passed last year that permanently banned Internet access taxes."

In September 2003 the House voted to pass an earlier version of the Internet Tax Nondiscrimination Act that would have permanently banned such taxes. But the Senate balked at the same bill, allowing the existing moratorium to expire last year. The main sticking point was a provision preventing the collection of taxes on VOIP (Voice over Internet Protocol) and other telephone services, which some saw as an unacceptable loophole that would have allowed telecommunications companies to skirt taxes by shifting more telephone technology online.

The new legislation covers taxes pertaining to Internet access and bandwidth. It does not exempt online retailers from collecting and remitting state sales taxes.